Rising drug regulatory warnings and alerts issued to Indian pharmaceutical companies is emerging as a key risk to profit margins in the sector.NEW DELHI: Rising drug regulatory warnings and alerts issued to Indian pharmaceutical companies is emerging as a key risk to profit margins in the sector. This, however, will not impacting the credit profile of affected entities, said a new industry study.

A significant increase in US Food and Drug Administration (FDA) warning letters threaten to delay Indian product approvals and launches in the US, according to a report on the country’s pharmaceutical industry by credit rating agency ICRA Ltd.

The report also foresees earnings likely shrinking for many pharma companies investing in review procedures, comprehensive action plans, site transfers and risk assessment of products already in the market, among other measures.

“Based on the severity of the deviations, the FDA has also directed some companies to get third-party evaluation of their remediation processes,” stated the report. “We believe these measures are likely to entail significant resources and impacts earnings of select companies in the near-term,” it added.

Where resolving FDA’s observations was concerned, large pharma companies held a better track record than mid-size companies, stated the report. For instance, seven out of the nine letters resolved so far belonged to large companies, according to ICRA.

The escalation of warning letters to import alerts also stands higher for small and mid-size companies, it added. Only a third of the warnings issued during 2008-13 have been resolved so far, according to the report.

Since 2008, around 50 warning letters have been issued to drug makers in the country, 40% of which escalated to import alerts, stated the report. The number of warning letters issued was the highest in 2015, jumping to 17 from 7 in 2014, it showed.

“In an environment where companies are going through pricing pressure owing to increased competitive intensity, these developments are likely to add to margin pressures. Nonetheless, we believe that the credit profile of affected entities is unlikely to be impacted in view of their strong balance sheets and liquidity,” stated ICRA.

FDA’s greater focus on compliance of current Good Manufacturing Practice (cGMP) guidelines by pharma companies have led to a spike in the number of facilities they have flagged over the years. According to ICRA, regulatory action has also been taken due to inadequate systems and controls preventing alteration in lab results and the absence of robust manpower training programs and management systems.

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